You Should Know

You Should Know

What's at Stake with NAFTA Renegotiations?

by Alexander Hitch

What's at Stake with NAFTA Renogotiations?

by Alexander Hitch

Renegotiation of the North America Free Trade Agreement (NAFTA) is set to begin in August. What is at stake? What are the Trump administrations’ objectives and what is the timeline? Here’s what you should know.

Talks to renegotiate the terms of the North American Free Trade Agreement (NAFTA) began in Washington on August 16. What is at stake? What are the Trump administration's objectives and what is the timeline? Here’s what you should know.

Photo: iSTOCK/ronniechua

Photo: iSTOCK/ronniechua

NAFTA came into force in 1994 as a trilateral free trade agreement between the United States, Mexico, and Canada to strengthen economic links between the three countries by reducing trade barriers and tariffs, or taxes on imported goods.

Easier market access is only part of the advantage. US companies are more cost-competitive when sourcing components from Canada and Mexico, boosting US exports. NAFTA has also strengthened security and political cooperation between the three countries.

Photo: REUTERS/Jose Luis Gonzalez

NAFTA, however, is also blamed for contributing to the reorganization of the US economy and labor market, as certain industries have relocated production abroad, leading to the loss of domestic manufacturing jobs.

Photo: REUTERS/Chris Aluka Berry

In his bid for the presidency, Donald Trump railed against NAFTA, promising to renegotiate or terminate the agreement when elected.

One of the main objectives is to update NAFTA to fit a 21st century economy. Entire industries like ecommerce did not exist when NAFTA was signed.

Photo: iSTOCK/AndreyPopov

Another objective is to bring the environmental and labor side-agreements into the actual text. Mexican wage levels and labor practices have been a source of complaint for those opposed to the agreement.

Photo: REUTERS/Rebecca Cook

The US administration also wants to remove the investor-state dispute settlement mechanism from the agreement, which allows individual companies to sue countries for alleged discriminatory practices...

Photo: iSTOCK/eccolo74

...and vaguely “guide” the negotiation with the explicit goal of reducing the US bilateral trade deficits with Mexico and Canada.

Photo: iSTOCK/claffra

So what is the timeline? If talks go well, Trade Promotion Authoritystill requires the US administration to provide Congress a minimum of 180 days for notification to Congressional committees of the agreement’s details and legal changes before signing. Most trade negotiations, however, take years, not months.

Photo: REUTERS/Jonathan Ernst

Signing alone is not ratification. Assessments and reports take another five months, before the final step of a 90-legislative day Congressional window, pushing the finalization into late 2018, at the earliest.

Photo: PIXABAY

The Mexican and Canadian governments must also ratify the updated agreement, and Mexico is hoping to avoid politicizing the renegotiation in its July 2018 Presidential election, potentially pushing the negotiation further out.

Photo: REUTERS/Tomas Bravo

Yet, if President Trump does ultimately decide to terminate the agreement, entire sectors could grind to a sudden halt, as vast supply chainshave been structured around the ease of cross-border movement.

Photo: REUTERS/Mario Anzuoni

The intertwined sectors of agriculture, automobiles, and energy would be most hurt by a disturbance in trade. Some estimates show that Mexican exports to the United States already consist of40% US-made contentbecause of the integration of manufacturing.

Photo: REUTERS/Rebecca Cook

A US withdrawal from NAFTA could result in tariffs returning to higher pre-NAFTA levels. Of the top 25 US states to be most affected by these higher tariffs, 21voted for President Trumpin the 2016 election, which is politically difficult for the administration.

Photo: REUTERS/Jim Young

The renegotiation begins when representatives from Mexico and Canada arrive in Washington, DC on August 16.

Despite growing partisan divisions over NAFTA, a new Chicago Council Survey reveals that US opinion on the benefits of international trade is now more favorable than ever. Read the full report to learn more.